CD&R weighs $7.6 billion offer for UK Morrisons

US private equity firm Clayton, Dubilier & Rice (CD&R) is considering a possible cash offer for British supermarket group Morrisons, it said on Saturday.

CD&R “notes the press speculation regarding a potential transaction involving Morrisons and confirms that it is considering a possible cash offer for the... share capital of Morrisons,” it said in a statement.

It said there was no certainty an offer would be made. Under British takeover rules CD&R has until July 17 to make a formal bid.

CD&R’s statement followed a Sky News report that it had made a preliminary bid approach to the supermarket group’s board that could value Morrisons at 5.5 billion pounds ($7.6 billion).

Bradford, northern England-based Morrisons is Britain’s fourth-largest grocer by sales, trailing market leader Tesco, Sainsbury’s and Asda. It is being advised by Rothschilds.

Shares in Morrisons, down 3% over the last year, closed on Friday at 182 pence, valuing the group at 4.33 billion pounds.

CD&R’s approach underlines private equity’s growing appetite for UK supermarket assets, attracted by their cash generation and freehold assets.

In February, Zuber and Mohsin Issa and private equity firm TDR Capital purchased a majority stake in Asda from Walmart in a deal valuing the target at 6.8 billion pounds.

That deal followed Sainsbury’s failure to take over Asda after an agreed deal was blocked by Britain’s competition regulator in 2019.

Morrisons has a partnership agreement with Amazon and there has been persistent speculation that it could emerge as a possible bidder.

Sky News reported CD&R has approached banks about financing a potential bid for Morrisons in recent days. It said a bid could involve Terry Leahy, the former Tesco CEO who is a senior adviser to CD&R.

When at Tesco, Leahy was the boss of Andrew Higginson and David Potts, who are now Morrisons’ chairman and CEO respectively.

Morrisons, unique among British supermarket groups in making over half of the fresh food it sells, trades from about 500 stores and has a staff of 118,000, making it one of the country’s biggest private sector employers.

In March, the group reported a halving of annual profit due largely to costs incurred during the COVID-19 pandemic, but forecast a bounce back in the 2021-22 year.

Earlier this month Morrisons was rebuked by investors over executive pay, with more than 70% of votes cast at its annual shareholders’ meeting rejecting its pay report.

Britain’s Morrisons declined comment on Saturday after a report that private equity firm Clayton Dubilier & Rice (CD&R) has made a preliminary bid approach to the supermarket group’s board that could value it at 5.5 billion pounds ($7.59 billion). A spokesperson for Morrisons, based in Bradford, northern England, had no comment on the Sky News report. A spokesperson for CD&R also had no comment.

Morrisons is Britain’s fourth-largest grocer by sales, trailing market leader Tesco, Sainsbury’s and Asda.

Sky News reported CD&R has begun approaching banks about financing a potential bid for Morrisons in recent days.

It said a bid could involve Terry Leahy, the former Tesco CEO who is a senior adviser to CD&R.

When at Tesco, Leahy was the boss of Andrew Higginson and David Potts, who are now Morrisons’ chairman and CEO respectively.

A bid for Morrisons would follow Walmart’s recent sale of a majority stake in Asda to the Issa brothers and private equity firm TDR Capital.

That deal valued Asda at 6.8 billion pounds and followed Sainsbury’s failure to takeover Asda after an agreed deal was blocked by Britain’s competition regulator in 2019. Morrisons has a partnership agreement with Amazon and there has been persistent speculation that it could emerge as a possible bidder.

Separately, Tesco’s sales growth has slowed sharply since the easing of the latest coronavirus lockdown as people start to visit pubs and restaurants again, Britain’s biggest retailer said on Friday.

UK like-for-like sales, excluding fuel and VAT sales tax, rose 0.5% in the 13 weeks to May 29, the group’s fiscal first quarter - ahead of analysts’ average forecast for a fall of 1.0%, but down from growth of 8.8% in the previous quarter.

Against the same quarter in 2019, before the pandemic impacted trading, UK like-for-like sales were up 9.3%. “We continued to benefit from more people eating at home, although this started to slow down through the quarter as hospitality reopened,” CEO Ken Murphy told reporters.

Agencies